Elan takes a bite out of Royalty bid

In a surprise move, Elan has promised to pay directly to shareholders a fifth of royalties it receives from sales of the multiple sclerosis drug Tsyabri, potentially throwing a spanner into the plans of US group Royalty Pharma to acquire the Irish drugmaker.

Elan recently announced that it plans to sell its stake in the MS blockbuster Tsyabri to partner Biogen Idec for $3.25 billion, plus royalties, of which shareholders will now receive 20%.

There is no cap to the dividend cash payments that will be generated, giving shareholders "the right to enjoy unlimited participation in the upside from the Tysabri sales increase which we anticipate for the future," the firm explained.

According to analysts at Berenberg, the move will trigger dividends to Elan shareholders of $68 million in 2014 jumping to $175 million in 2023.

The first dividend is expected to be paid in the fourth quarter of 2013, subject to the closing of the recently announced Tysabri restructuring.

Elan chief executive Kelly Martin said the move was part of a "value creation initiative" made up of three related but distinctive components: a $1 billion dollar share repurchase program, the Tysabri-linked cash dividend, and the addition of "specific business assets which will allow for diversification across molecules, therapeutic areas and geographies.”

This, Martin stressed, provides Elan and its shareholders significant near and longer term benefits.

'Opportunistic' bid

The move comes just days after a $6.5 billion offer for Elan from Royalty Pharma, which the firm brushed off as “highly opportunistic” and “heavily conditional” but stopped short of issuing a formal dismissal.

Royalty's surprise move on Elan itself came just days after the Dublin-based drugmaker unveiled its plans for a $1 billion share buyback and sale of Tysabri, which the firm believes was timed to come "before shareholders had the opportunity to assess and realise the full benefit of the Tysabri transaction and the partial unlocking of its value".

Experts believe that Elan's growing share price - which has climbed more than 10% since Royalty first made its move - will now mean a higher bid.

"This news reduces Royalty's options and, if serious in its intentions, increases the need for a higher formal offer that more fairly reflects Tysabri upside," Berenberg said in a note, according to Reuters.